Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the
three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance, Barrons, djindexes.com, London Bullion Market Association. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
ONE OF THE CORE BELIEFS OF MODERN INVESTING TURNED OUT TO BE not so true. Investors have long believed in stocks for the long run and that stocks outperform bonds over a long period of time. Well, we need to re-evaluate that old truism. New data shows that for the 30 years ending September 30, 2011, long-term government bonds outperformed stocks. During that period, bonds rose by 11.5 percent a year on average, beating the 10.8 percent increase in the S&P 500, according to Jim Bianco, president of Bianco Research in Chicago, as reported by Bloomberg. Thats the first time bonds beat stocks over a 30-year period since the Civil War! Heres some long-term historical data on how stocks and bonds have performed relative to each other: Period # of Years Winner 1803 1857 54 Bonds 1803 1871 68 Tie 1857 1929 72 Stocks 1929 1949 20 Bonds 1932 2000 68 Stocks 1981 2011 30 Bonds
Sources: Bloomberg, October 31, 2011; Index Universe; Ibbotson SBBI
Is this an argument for dumping stocks and just owning bonds? No. The recent outperformance of bonds over stocks was partially a function of the starting point and the lost decade for stocks. Specifically, in 1981, long-term government bonds yielded in the 13 to 15 percent range while, last Friday, the yield was down to 3.1 percent, according to data from Yahoo! Finance. As the yield drops, the price of the bond rises, thus, giving investors a capital gain on top of the interest return. With yields so low now, you wont get the same capital gain boost from bonds that we experienced over the past 30 years. In fact, Professor Jeremy Siegel, author of Stocks for the Long Run, says, Its absolutely mathematically impossible for bonds to get any kind of returns like this going forward. Bonds also benefitted from the lost decade in stocks as stocks experienced two bear markets in the past 11 years. This historical data does two things for us: 1. It suggests that there are no absolutes when it comes to investing, except, perhaps, that there are no absolutes. Key takeaway be flexible.
2. It suggests that there is a time and a place for each asset class and placing each asset class within historical context is important. Key takeaway know history. Oh, we should add a third key takeaway from this data be a continuous learner!
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods. * Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. * Past performance does not guarantee future results. * You cannot invest directly in an index. * Consult your financial professional before making any investment decision. * To unsubscribe from The Monarch Report, please click here, or write us at chloe.hansen@lpl.com